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Mr. Duncan Smith: It is a Labour pledge. The Secretary the State can do whatever else he likes, but he cannot wriggle off that hook. Labour said that it would cut social security. As we run towards the next election, we will make it clear to the British public that they cannot have it all ways as the Labour Government have pretended. They pretend that they can increase massively spending on social security, education, health and everything else without having to raise taxes. That is the critical issue. The Government are not telling the public the truth. That is what lies at the heart of the failure.
A much more important issue lies behind all that: why the Government will fail on all those objectives. What exactly drives the Government? What is their clear agenda? It is not quite what the Secretary of State laid out--there is a deeper subtext.
It is the Chancellor of the Exchequer's determination to change the social security system, using the idea that, at the top line, work solves all problems with regard to poverty. Behind that lies the other part of the equation, which the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), the Chairman of the Select Committee on Social Security, touched on: the growing level of means-testing. The explanation for that is that the Chancellor also has to focus on the bottom 10 per cent. He believes that that is the only way in which he can now direct the money. He cannot have it both ways, otherwise he will end up increasing spending even at a greater rate than the Government are about to do.
The Chancellor did not tell the public about that and Labour did not campaign on that at the election.
I discovered something the other day quite by surprise. In 1993, when the Chancellor addressed the Labour party conference, he said:
The criticisms by the right hon. Member for Birkenhead of that system and process have been widely publicised. He said in 1998:
First, the Treasury takeover of the Contributions Agency deliberately fudges the connection and distinction between national insurance contributions and taxation. At present, we all know that two separate agencies collect tax and national insurance, but that takeover, notwithstanding the Government' assurances in the other place that it is just a functional step and tidies things up, is a deliberate step to eradicate any distinction. In brief, it is a short functional step towards sending the national insurance system into oblivion.
What comes next begins to make the case. It is the introduction of what the Secretary of State referred to as the minimum income guarantee for pensioners. I think that that is a misnomer; the Liberal Democrat spokesman, the hon. Member for Northavon, picked that up. It is no such thing. It is an income support guarantee for pensioners, which is fundamentally different. That is another example of the Government running their misleading rhetoric well ahead of reality. They want pensioners to believe that they will all get an increase. As the Liberal Democrats have pointed out, that is not true. Pensioners are not that stupid. They know that this is about income support because they know what income support is all about. The Government are merely shifting the base to income support while freezing the level of the pension. They have increased the scope for means-testing, which, as the right hon. Member for Birkenhead has pointed out several times, is a mistake.
Another negative effect is that many pensioners will choose not to take the money. The Secretary of State mentioned this important issue. A significant number of pensioners whom we believe to be eligible--almost 1 million, I think--do not claim income support. Increasing the level of income support will merely chase the error. The Government will not solve the problem if they merely add to the aspect that pensioners do not like. Perhaps there is a reason for that. Perhaps they know that fewer people will take the benefit and are hoping to save money. The solution can surely only make matters worse.
Mr. Paul Goggins (Wythenshawe and Sale, East):
I am trying to follow the hon. Gentleman's argument on means-testing. If he were ever to regain power--that is a separate debate--would he abolish means-testing?
Mr. Duncan Smith:
I am glad that the hon. Gentleman has received his brief to ask a question, because the
Mr. Chris Pond (Gravesham)
rose--
Mr. Duncan Smith:
I want to press on with my point before I give way again.
Pensions Week said--
Mr. Darling:
If the hon. Gentleman is saying that means-testing is wrong, is he repudiating the ideas that he set out in the pamphlet "Who Benefits?" that he and some of his hon. Friends published in 1993? He said that it would be difficult and undesirable
Mr. Duncan Smith:
Those are absurd extrapolations, but as the Secretary of State has raised the issue I should like to talk about it. He should read the pamphlet, which I think was remarkably good. It dealt with the reorganisation and restructuring of the benefits system. Can it be focused on a means test or does the system have to be simplified so that it can be based more on eligibility rather than simply concentrating on means-testing? The pamphlet gives options both ways. My view is that extending means-testing is a mistake and will not solve the problems. As we approach the election, we shall make it clear how we shall rectify the problems.
Mr. Field:
Is it not absurd to debate whether one side or the other is going to abolish means tests? Is not the crucial question whether the direction is to increase or reduce means-testing? I have a better question for the hon. Gentleman. Should the Conservatives get back into power, would the direction of their policy reduce or increase means-testing?
Mr. Duncan Smith:
I accept that the objective is not to debate what happened two, three or four years ago. Looking ahead, my instinct is that we must learn from previous mistakes. Before I discuss the Government's actions, let me say that they have not learnt at all from such mistakes. In fact, there is a clear agenda that will take them straight back to the worst elements of the past 35 years. I want to learn from those mistakes and not return to agendas that have failed. I hope that I have answered the right hon. Gentleman's question.
Pensions Week calculated that after the minimum income guarantee is introduced next April, a married man who has saved up to £9,000 during his life will find that he has the same income in retirement as someone who receives the minimum pensions guarantee and who made no effort to save. The difference is that the first pensioner had to put aside some of his daily income and make that
hard choice while the other person did not. That is one of the inequities of the Government's policy. It is the biggest road sign that points to the ultimate demise of the basic state pension and the gradual emergence of a fully means-tested system.
Before the Green Paper was published, the Government said, "Don't worry, wait for the Green Paper when all will become clear and all will be simplified." Yet the Green Paper offered absolutely nothing to the 10.7 million existing pensioners. [Interruption.] The Secretary of State says, "Rubbish", but I have spoken to many pensioners up and down the country and they all say the same thing. They say that behind closed doors Labour Members were telling pensioners not to worry and to trust them as they would restore the earnings link. They may not have said it publicly, but they certainly said it privately. Pensioners feel let down.
Labour told 10.7 million pensioners, "Wait for us", but, instead of rectifying the problem, they introduced the advance corporation tax dividend tax hike which has hurt so many. They had the opportunity to help out the 300,000 non-tax paying pensioners and the 80,000 other pensioners who will be hit by that measure, but they chose not to. I do not know whether the Secretary of State made representations to the Chancellor, but if he did, they were clearly not heeded. It strikes me that the pensions policy is yet another measure that forces people further down the income scale.
I do not want to spend much more time on the Green Paper on pensions because, as the Secretary of State said, we will have a debate on that next week when I intend to raise specific issues. However, it is worth noting that the Green Paper made a huge mess of pension provision which will progressively drive people down the income scale, and increase the numbers that are likely to fall onto income support. Most independent calculations are now beginning to show that.
For example, the Government's plans pose a real danger that employers will close their occupation schemes to new entrants and simply offer them access to a stakeholder scheme to which those employers make no contribution. Employees will therefore lose an element of future income. The Government's plans also attack salary-related occupational schemes, signalling the death-knell for such schemes. The confusion in the Government's proposals may encourage people to join stakeholder pensions that may not prove to be the cheapest or the best investment for them. All the talk about capital limits is part of the debate about perverse incentives on the margins of means-testing, which the Government seem unable to understand, or which they understand for the wrong reasons. As many papers said, the Government's plans tinker with the real problems rather than tackle them.
Let us consider the other factors that are linked to means-testing. Under the Government's new bereavement benefit, widows and widowers with no dependants will have their benefit withdrawn after six months despite the contributions having been paid. If that is not a severing of the contributions link, I do not know what is. The changes will mean that eventually many will be dumped onto means-tested benefits. The Secretary of State must know that because he indicated as much in his statement. He knows that the National Association of Widows said that it would like the state contributory principle to be upheld for future widows.
There is no question that the Government want to shift the child benefit system towards some form of means test, through taxation. The Secretary of State has not denied it. Government assurances on the matter ring hollow. Many mothers are now receiving forms through the post, asking exactly who is in the household and what the incomes are. The idea is to try to measure the household income. Big Brother is asking all those questions in order to be able to decide whether it is feasible to tax child benefit. The Government have said that they are thinking about doing that, and they are trying to find out some of the information en route.
When the Government first said that they would tax generally, the Institute for Fiscal Studies said:
Even worse is the side effect of going down that road on child benefit. For example, the IFS shows that about 90 per cent. of families with one earner and one partner staying at home looking after children would be losers. Of families with two earners, about 98 per cent. would be losers.
The IFS said:
The IFS said:
The clear line running through the Government's proposals amounts to the extension of means-testing and the repetition of many of the mistakes that have been made over the past 30 years or so. Before the general election, the Prime Minister claimed that the Government would reduce the dependency culture but, as I think I have shown, they pursue an agenda of extending means-testing, which all hon. Members should agree drags people into dependency, not out of it. The working families tax
credit increases dependency even more. The Treasury anticipated a 27 per cent. increase in claimants for the credit, which would increase the number claiming to about 400,000.
Means-testing encourages fraud and deception. That is pretty much established. In its manifesto, the Labour party promised to tackle fraud, yet the whole ethos of the change will make it worse. The manifesto said:
Most of all, the Government's programme attacks what I believe to be the nature of the family. It is becoming clear that the Government see work as the solution to all the problems and intend to drive through a vicious means-testing programme so that they can focus social security on the bottom 10 per cent. The policy is utterly flawed and flies in the face of the evidence on how best to deal with poverty in the community. The Government are in effect making war on families who are the greatest source of welfare provision and natural support for people in all income groups.
For example, Ruth Lister, a one-time member of Labour's Commission on Social Justice, congratulated the Government on a Budget that moves away from "supporting the family". She is right on that. The new Treasury Minister, the Economic Secretary, also claimed in a speech in 1996 that marriage "doesn't fit any more". A theme runs through most of the utterances of Labour Members.
"I want the next Labour Government to achieve what in 30 years of the welfare state has never been achieved. The end of the means test for our elderly people."
I want to examine to what extent anything he is doing runs anywhere near that process. As I have said, the Chairman of the Select Committee needs to think about that one. The man who was against means-testing, the right hon. Member for Birkenhead (Mr. Field)--he is now sitting on the Benches behind the Secretary of State--was pushed out ultimately by the man who is for means-testing.
"Means-testing penalises honesty, discourages work and harms thrift".
Let us analyse that and see exactly what is happening within the Government.
"to bring back an effective system of state assistance organised solely on collective social insurance lines."
Is he saying that the Tories would abolish all means-tested benefits if they returned to power? How on earth would they pay for that?
"As the tax system currently stands, such a proposal would be very difficult to implement. The tax system needs to identify not just the recipient of the child benefit payment, but also the partner in the tax year who may be liable to tax on this payment. It would require the linking of the tax circumstances of all taxpayers with those of their partner. This would be particularly problematic for lower-and basic-rate PAYE taxpayers who currently do not make tax returns."
The Government's annual report clearly stated that they intended to go down that road. It said:
"we believe there is a case for higher rate taxpayers paying tax on Child Benefit if it is to be raised in the future."
The Government have raised it, so do they intend to tax it? The IFS said:
"The taxation of child benefit at the higher rate either raises almost no revenue or significantly increases the complexity of the tax system while raising relatively little revenue."
Do the Government intend to tax child benefit? The structure of the system seems to be moving.
"individuals would face a penalty for declaring cohabiting relationships involving children. As such without any further change we would expect fewer relationships to be declared."
In other words, people would be driven into further dependency elsewhere in the system, and there would be statutory single parents who might in reality not be single parents. People who are honest about their relationship and get married will be penalised in favour of another style of relationship. That shows the short-sightedness of the Government's proposals.
"The second alternative is to question the principle behind independent taxation. This question is clearly raised by the taxation of child benefit as joint income."
The Government must clearly decide one way or the other.
"Just as we owe it to the taxpayer to crack down on tax avoidance, so we must crack down on dishonesty in the benefit system."
One cannot do that if one increases the structure that creates fraud in the system. From WFTC onwards, there is an increasing agenda of fraud, and not one that is likely to fade away.
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